Cineverse (NASDAQ: CNVS) stock will rise some 2,000% at the open this morning. Just for clarity's sake no, this really is a different company from Cineworld (LON: CINE). They're not even in the same business, so don't get them confused. Also, CNVS is just not doing very well, CINE is actually in Chapter 11.
Cineverse is in streaming and describes its business as: “Cineverse Corp. operates as a streaming technology and entertainment company. It owns and operates streaming channels, powered by its proprietary technology platform.” It was known, until last month, as Cinedigm and traded as (NASDAQ: CIDM). We're clearly in the clean up stage here, a name change, a revival of the stock price and so on. Whether that will change the performance of the underlying business is of course another thing.
Whether there's actually anything wrong with that underlying business isn't quite the point here. Nor whether there's anything right with it. Streaming is something that works, if it is going to, at scale. The acquisition of the property to be streamed has a capital cost - revenues then come from the marginal viewer. Scale is thus necessary and there's a lot of competition in trying to reach that.
Cineverse stock price from NASDAQ. Note that this is post-consolidation
The particular problem is that Cineverse stock has been bumbling along for months now between 30 cents and 60 cents. This isn't a grand problem - prices are just what prices are - except for the fashion, or cultural practice, in the New York markets. A penny stock is seen as somehow not quite right, as disreputable. Therefore to remain on the main exchanges, NASDAQ or the NYSE, it's necessary to meet the $1 minimum bid price. Fail to do that and the main listing is lost and it's off the wolds of the over the counter, OTC, market. Where liquidity is lower, capital raising more difficult and more expensive.
The solution is a purely technical change - a reverse stock split or consolidation. Just announce that what used to be 20 shares will now become just the one. This doesn't change the market capitalisation, nor the value of any particular stake. It changes the number of pieces of paper which make up either of those and so, as if by magic, changes the price of each piece of paper. Which is exactly what Cineverse has just done, a 20 for one reverse stock split which take effect at the open this morning.
This is a purely nominal price change, it's of no great importance - so don't get excited over it. And, just to repeat, this is nothing to do with Cineworld at all, not even close.